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Britain's financial watchdog, the Financial Conduct Authority
(FCA), has been reviewing the debt management industry since last
June, after gaining responsibility for the sector last April.

The results of the review are in and they're not good.

The FCA said on Thursday that too many companies that
provide advice to people struggling with debt are "failing
Britain's most vulnerable consumers."

The regulator was particularly unhappy with firms that charge a
fee. Debt management
companies are supposed to provide advice on how to structure
repayments and handle debt, but the FCA said fee-charging
services were offering "unacceptably low" quality service in many
cases.

The FCA found firms weren't taking enough interest in the
financial circumstances of the people who came to them, instead
focusing on what products they could sell them. In many cases the
products themselves were also inappropriate.

Here's the FCA:

One customer on a low income told an adviser that she had
considered bankruptcy but did not want to lose her car. The
adviser not only failed to tell her this assumption may have been
incorrect, but recommended a debt management plan that would take
125 years to pay off, well beyond her lifetime.

Other damning findings include "misleading marketing," inadequate
protection of client money, and selling people products they
didn't need, like insurance or fee-charging bank accounts.

Here's an example, again from the FCA:

A customer approached a firm to seek help with their debts of
around £27,000. The firm assessed the customer’s financial
situation and calculated a disposable income of £90pm [per
month], taking into account the firm’s fees; it would take the
customer approximately 37 years to clear their debt.

The firm also sold the customer a fee-charging bank account at
£14.50pm. This was not taken into account when calculating
the £90pm disposable income, therefore reducing the amount
the customer had available to pay towards their debts
(to £75.50pm), and increasing the length of the debt
management plan by an additional 10 years. This was not
discussed with, or explained to, the customer to enable
them to make an informed decision about the additional
product.

In other words, a customer signed up to a bank account without
knowing that it would turn a 37-year plan into a 47-year plan.

Debt management firms who sold PPI and other inappropriate
products could also be forced to payout — the FCA has told
company's that failed its tests to review past cases and "provide
appropriate redress where customers have suffered harm."

The FCA says that overall the results of the review were "very
disappointing." The regulator has effectively put the industry on
watch now, closely monitoring several firms while it works out
what action to take next.